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Wellington. Shares in Australia’s dominant phone provider, Telstra, have hit a record low, damaged by a triumvirate of falling earnings, uncertain network negotiations and a potential government-enforced split.

Telstra’s beleaguered investors have been left wondering whether the worst has passed or whether fresh lows are in the offing, as Australia’s Senate prepares to debate today legislation to forcibly split the company’s wholesale and retail business if it does not do so voluntarily.

Telstra shares have climbed above their lows in recent days on reports the government will not be able to muster the necessary support to pass the bills, aimed at increasing competition in the telecom sector.

Telstra is at 3.08 Australian dollars after falling to a record low of 2.88 Australian dollars on March 2 — the lowest since the company was floated in 1997.

The stock has lost 11 percent so far this year in a broader market down 1 percent.

A major positive for Telstra would be a successful deal to sell its network of copper phone lines to the government-owned National Broadband Network Co., which wants to make a high-speed wholesale Internet network readily available to all.

The network has seen estimates of value ranging between 8 billion Australian dollars and 33 billion Australian dollars ($7.3 billion to $30.3 billion).

“I don’t think there’s too many people that wouldn’t see valuation upside from a resolution of the regulatory and NBN issues, but people are just debating when they’re going to come through,” Michael Maughan, a senior analyst at fund manager Tyndall Investment Management, said.

“The market at the moment is pricing in the absolute worst case scenario in terms of what the government could potentially enforce on Telstra,” said John Murray, the managing director of Perennial Value Management.

Murray said he is overweight on Telstra.

Telstra has maintained its forecast of 6 billion Australian dollars of free cash flow for the year to June 30, 2010.

“Despite an apparent loss of revenue momentum, our modelling continues to highlight a 28 cent dividend is sustainable even under bear-case NBN outcomes,” UBS analyst Richard Eary said in a note.

Eary rates the stock as a buy with a 12-month target price of 4 Australian dollars.

“Even if they had to cut the dividend by, say, 25 percent, you’re still getting what we’d consider a very good running yield,” said Perennial’s Murray.

 

Reuters